Monday, 18 December 2017

Killer Arguments Against LVT, Not (429)

Emailed in by Patrick H, from an estate agent's website(!):

LVT could in fact be a great replacement for council tax, a tax which many believe is in desperate need of an update. Economists love the idea of a land tax because land is a fixed entity, waiting to be used, therefore increasing the demand for land will not reduce its supply. So, it should not distort public behaviour in the way that other taxes do.

Many taxes appear to discourage useful public behaviour: national insurance discourages employers from hiring; stamp duty discourages mobility among home owners and council tax can discourage landlords from improving their properties. In contrast, LVT would make land use more productive. This tax would remain the same amount, regardless of how well the land is being used, meaning that if you owned land it would be more profitable for you to use your land to its full potential.

All in all, very positive. Here's the "but..."

So why has this ever-popular tax not been introduced? There are practical barriers to introducing LVT to London. It will not always be easy to identify land owners because often there are complex lease arrangements and multiple people can own a plot of land. There is also always the political risk involved with charging the public with another tax.

The man's at least asking the right questions...

1. Identifying land owners for 99% of land by value is easy, see here. My sister did conveyancing in London for twenty years and said that she only saw unregistered land once or twice. There will be a few blanks, but the council just has to deliver a letter or stick up a poster at the gate to a field inviting the owner to register and pay the tax, failing which, the council will take it over and rent it out.

2. Working out how the tax is split between leaseholders and freeholders is also easy if you apply common sense, and might result in a lot of interests being merged.

3. If there are multiple owners, so what? Think of all the couples who jointly own a house and share the Council Tax, mortgage, insurance etc. If a group of people own a rented building, then it's even easier, the LVT is paid out of the gross rental income and they can split up the net income in the same way as they did before.

4. LVT clearly should be a replacement for existing taxes, starting with all taxes that relate to land and buildings - Council Tax, Business Rates, SDLT, Inheritance Tax, all the planning fees and charges and so on.

... and making a couple of good points of his own...

The Tories have harnessed the public reservation by labelling LVT as a “garden tax”, once they had spotted it in Labours manifesto, suggesting that the Labour party would have you kissing goodbye to any beautiful leafy green havens in your neighbourhood if they had their way. The nickname of “garden tax” seems entirely inappropriate when one remembers that council tax already factors in larger gardens.

More to the point, if you look across the whole country, the size of a garden has precious little impact on the value of a home; what matters most is its location, location, location. A big detached house in Newcastle is worth less than a two-bed flat in most parts of London.


Physiocrat said...

LVT has to be a replacement tax as other taxes are competing for the same revenue stream.

This is, incidentally, a good reason for scrapping VAT on Brexit Day. It eats into the revenue which would have otherwise have been collected anyway through other taxes such as Corporation Tax and UBR. This is over and above the deadweight loss to the overall economy. I have seen no authoritative estimates but it cannot be less than 0.25% for ever 1% of VAT.

The IFS assumed 0.5% of retail trade per 1% VAT in its 2009 Green Budget. VAT is a tax the country cannot afford.

Mark Wadsworth said...

Ph, agreed. I'm happy to say that a lot of Georgists have picked up on the fact that VAT is the worst tax.

Pablo said...

Diagram of tax rankings (according to Gaffney) here:

Mark Wadsworth said...

Pablo, thanks. I only just got round to following that link.